How Okta Increased Its Addressable Market by $15 Billion

During its April 7 investor day, Okta confirmed its outlook for fiscal year 2022 (ending on Jan. 31, 2022). The identity specialist also announced new developments that should vastly increase its addressable market and fuel its growth beyond the short term.

Strong performance

Okta has been disrupting the identity market over the last several years with its cloud-native platform. It expanded its core workforce identity business, which manages authentication and authorization of companies’ employees, to include customer identity capabilities for companies’ customers as well.

Management estimated those two identity areas represent a market of $65 billion, which suggests significant growth potential considering the company’s fiscal 2021 revenue totaled just $835 million (up 43% year over year).

Management anticipates the company will sustain its strong top-line performance in the future. It confirmed its outlook for revenue growth in the range of 29% to 30% during fiscal 2022, and it forecast revenue to grow annually by 30% to 35% through fiscal 2024, excluding acquisitions, as enterprises accelerate their digitization efforts and move some of their applications and infrastructures to the cloud.

And with the $6.5 billion all-stock acquisition of customer identity specialist Auth0, revenue growth could exceed 35% annually during that time frame. Indeed, Auth0 will boost Okta’s customer identity business, and Okta will leverage Auth0’s footprint to sell its workforce products.

Expanding addressable market

Okta also announced new offerings to address the privileged access management (PAM) and identity governance and administration (IGA) markets.

With PAM, Okta will manage accounts that require special credentials, such as administrator rights to databases and cloud infrastructures. And with IGA, the company will deal with the lifecycle of identities. For instance, it will automatically update access rights based on requests and policies.

So far, Okta had been partnering with specialists such as CyberArk Software and SailPoint Technologies to integrate these complementary identity capabilities. It will become a competitor with some of its partners, but despite that, its decision to address these new markets with its own offerings makes sense. It will profit from synergies and cross-selling opportunities between its different products by proposing a wide range of integrated identity capabilities.

As a result, management estimates the company’s addressable market will increase another $15 billion to reach $80 billion. Of course, you should take these impressive numbers with a grain of salt as they depend on rather subjective assumptions. But the point is Okta is exposed to vast markets that give it plenty of room to sustain its strong growth.

Looking forward

Despite such attractive potential, Okta’s valuation is elevated. Even after the recent tech sell-off, the stock is still trading at a high forward price-to-sales ratio of 29, based on the midpoint of management’s full-year revenue guidance range of $1.08 billion to $1.09 billion.

Going forward, the company will have to deliver truly impressive performance to match investors’ high expectations. For instance, as it has been prioritizing investments in sales and marketing and research and development to capture growth opportunities, Okta remains far from operating at a profit under generally accepted accounting principles (GAAP). During the last 12 months, GAAP net losses reached $266 million compared to $209 million the year before.

Thus, investors should pay close attention to Okta’s execution over the next several quarters. Its new offerings will become key in justifying the company’s demanding valuation.